Though direct mail is all the rage in making very small business loans, branches still do quite a job.

KeyCorp, Norwest Corp., and Compass Bancshares-all of which rely on their branches for loan growth-have been making big strides in business loans of less than $250,000.

KeyCorp was the leading bank in making such loans, according to a Small Business Administration study of the largest bank holding companies in small-business lending.

Norwest was seventh, and Compass was 17th, but all three racked up double-digit growth-without a major merger-according to the study.

Small-business loans generally are considered to be commercial and industrial loans of less than $1 million. By that measure, NationsBank and Wells Fargo & Co. outpaced KeyCorp.

But in the $250,000-and-less category, KeyCorp stands out; its portfolio is the biggest and is growing faster than most.

Cleveland-based KeyCorp distributes small-business loans largely through its far-flung branch network in the Northeast and the Pacific Northwest.

KeyCorp was also the leading bank holding company for loans of less than $100,000, with $2.4 billion outstanding.

"KeyCorp has come from over 100 mergers of community banks, and that provides us with a big advantage," said Sandra Maltby, Key executive vice president for small business.

"We're not in the big cities-we're in Boise, Idaho, and Elkhart, Indiana, where we can leverage our strengths in small business," she said.

KeyCorp had 74,542 $250,000-and-under loans, with outstandings of $3.8 billion, according to the SBA study, which examined data from June 1996 call reports.

KeyCorp, Norwest, and Compass also ranked among the banks with the highest ratios of such loans to total assets and total business loans.

San Francisco-based Wells Fargo & Co., twice as large as KeyCorp, had vastly more $250,000-and-under business loans-217,399- but outstandings totaled only $3.4 billion.

NationsBank Corp.'s $250,000-and-under portfolio declined 9% to 120,480 loans for $3.1 billion in the year it acquired Bank South Corp.

For all small-business loans under $1 million, NationsBank had a $4.2 billion portfolio, bigger than any other banking company.

Wells Fargo had a $3.95 billion portfolio in this category, barely topping KeyCorp's $3.92 billion.

Wells Fargo, which pioneered direct-mail sales of small-business credit lines, had $2.2 billion outstanding in loans for less than $100,000.

According to the SBA figures, KeyCorp's small-business loan portfolio increased 25%, while Wells Fargo's increased 114% during the year in which it acquired First Interstate.

KeyCorp attributed its continuing strength in the small end of the small-business market to its decision to give relationship managers training in the technical aspects of small-business lending as well as classroom seminars on understanding entrepreneurs, Ms. Maltby said.

The $65 billion-asset KeyCorp also structured the small-business sales process so lenders can create a profile of their customers' goals, take inventory of their finances, and set a game plan for achieving those goals.

Minneapolis-based Norwest's presence in smaller cities helped it increase its $250,000-and-under loans 18% to 84,404 ($2.6 billion), said James Schmitt, Norwest director of business banking management.

The $66 billion-asset Norwest, which maintains a decentralized structure of 33 banks primarily in midsize cities in 15 states, has $1.3 billion outstanding in loans for less than $100,000.

"Norwest cuts its teeth and makes its market in the heartland," Mr. Schmitt said. "We're in many small communities and that's where we make our small-business loans."

Birmingham, Ala.-based Compass Bancshares increased its $250,000-and- under small-business loan portfolio 248% to 31,694 loans for $1.3 billion, again without a major merger.

The $12 billion-asset Compass has a large presence in Birmingham, Huntsville, Montgomery, and Mobile, Ala., and in Pensacola and Jacksonville, Fla.

"We generate most of our business from the four larger markets in Alabama," said Randy Haines, Compass senior vice president for the Birmingham region.

What's more, Compass, which is also active in Dallas, Houston, and San Antonio, had $1.2 billion outstanding in small-business loans for less than $100,000, according to the SBA's statistics.

"We have a significant number of small businesses in our market as a percentage of the total businesses, and many of them have smaller borrowing needs," Mr. Haines said.

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